Will There Be Another Bubble?

Whether or not there will be another bubble is a key issue, in part because we needn't take actions to avoid it if it isn't likely to happen. One school of thought is that there will not be. It won't happen again—at least there will be no bubble of this magnitude, doing the damage it did, in the foreseeable future.

The argument proceeds as follows: The dot-com and telecom bubbles required the confluence of a speculative mania with a technological discontinuity. The potential for mania resides in the human psyche and will be there always, but a technological discontinuity of the magnitude of the Internet is very unlikely. What was crucial about the Internet was that it promised to transform all of the economy. Every company's board was required to think through the possible impact of the Net on its business—whether consumer goods or capital goods, or services—and government and nonprofits as well. It was absolutely pervasive. So it was a technological discontinuity of enormous proportions, and gave rise to a speculative mania otherwise unlikely.